By John Burgess
April 11, 2000
The groups will begin by pressing labor unions, churches and "socially responsible" investment funds to drop the highly rated bonds. If that works, the plan is to move on to investors at large, who now hold close to $190 billion of the bonds. With letters and face-to-face meetings, proponents will say, "what's the point of holding on to these things? Why don't you just get rid of them and join us?" said Neil Watkins, the campaign's organizer.
The Washington-based bank, a cooperative of 181 countries, specializes in development loans, making $29 billion of them last year. Critics contend that projects such as petroleum pipelines harm the environment, while its market-opening policies cost jobs in poor countries and encourage creation of sweatshops. Critics also argue that the loans burden poor countries with debt-service obligations that drain resources that could otherwise go to health, education and food programs. In the bank's view, its loans are key weapons in a battle against poverty and disease, helping ordinary people profit from their countries' resources and enter the world economy. At the same time, the institution is taking part in a program to cancel much of the debt owed by desperately poor countries.
Wall Street paid little attention yesterday. Rating agencies Moody's and Standard Poor's both give the bank's bonds the highest possible rating, AAA. As a result, the bank pays low interest rates to bondholders and can offer discount-rate loans to borrowers. The AAA rating grows from the bank's solid financial footing and borrowing countries' practice of giving preferred status to World Bank loans at payback time, said John Chambers, deputy managing director of the sovereign group at Standard Poor's. The bank has "almost unparalleled access to global markets," he said.
Standard Poor's foresees little impact from the boycott effort and has no plans to change the AAA rating, he said. Whatever its ultimate success, the campaign will test the belief that investors in significant numbers can be persuaded to forgo financial advantage--that's why they buy the bonds in the first place--to press what they see as a higher moral claim. Boycotts of U.S. companies with holdings in apartheid South Africa had major impact during the fight against white rule there. Proponents hope for similar impact this time around. "It's an attempt to express humane values through the pocketbook," said Dona Spring, a member of the Berkeley, Calif., city council who introduced an anti-bond measure that the council passed last month.
In raising money, the World Bank functions much like a private company. The money its shareholders--world governments--contribute is only a tiny portion of its total. Most of the rest comes from borrowing by selling bonds in world financial markets. The bonds have been around since the 1940s; last year new ones were issued in 12 different currencies. Some investors, such as church pension funds, have long bought the bonds because they feel they're an investment against poverty. "I am more accustomed to people treating World Bank bonds as socially responsible investments than . . . the opposite," said Gary Perlin, the bank's chief financial officer.
He predicted little success but said that any the campaign does have "wouldn't hurt the bank. It would hurt the countries to whom we are lending," because the bank would have to pass a higher cost of borrowing on to them in the form of higher interest rates for loans. "For people who are looking for debt burdens to come down," he said, citing critics' call for cancellation of loans owed by poor countries, "I can't make logical sense out of that." Organizers dismiss that objection, saying their long-term goal is to force the bank to reduce its lending.
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